Business context and reporting period
Codexis, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company develops and sells engineered enzymes and proteins using its CodeEvolver platform. Its two segments are Performance Enzymes and Novel Biotherapeutics.
Key financial metrics
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $25.5 | $15.0 | $43.5 | $29.6 |
| Product revenue | $14.7 | $4.5 | $24.9 | $9.6 |
| Research and development revenue | $10.7 | $10.5 | $18.5 | $20.0 |
| Product gross margin | 71% | 62% | 66% | 56% |
| Research and development expense | $12.8 | $10.9 | $24.4 | $21.8 |
| Selling, general and administrative expense | $12.8 | $8.5 | $24.2 | $17.5 |
| Operating loss | $(4.5) | $(6.1) | $(13.6) | $(13.9) |
| Net loss | $(4.3) | $(6.3) | $(13.3) | $(14.0) |
| Net loss per share, diluted | $(0.07) | $(0.11) | $(0.21) | $(0.24) |
- Cash and cash equivalents were $129.5 million at June 30, 2021, down from $149.1 million at December 31, 2020. Cash, cash equivalents and restricted cash totaled $131.6 million.
- For the six months, operating cash use was $14.7 million, investing cash use was $4.9 million, and financing cash provided was $0.5 million. Net decrease in cash, cash equivalents and restricted cash was $19.2 million.
- Working capital was $148.3 million. Total liabilities were $49.5 million, including $23.7 million of operating lease obligations. No credit-facility borrowings were outstanding; up to $15 million was available, subject to facility terms and covenants.
- Total assets were $212.3 million and stockholders’ equity was $162.8 million at June 30, 2021.
Material changes versus prior comparable periods
- Q2 revenue rose 70%, driven mainly by a 227% increase in product revenue as demand for enzymes used in branded pharmaceutical manufacturing increased. Six-month revenue rose 47%.
- Product gross margin improved, attributed primarily to a higher mix of branded products.
- Q2 R&D revenue was broadly flat, but six-month R&D revenue declined 7%, largely because Takeda fees recognized in the prior-year period were higher.
- Operating expenses increased 42% in Q2 and 31% for the six months, with higher headcount, outside services, legal costs, depreciation, lab supplies and stock-based compensation among the cited drivers. Net losses nevertheless narrowed, mainly on higher product revenue and margins.
- APAC revenue reached $13.4 million in Q2 versus $4.7 million a year earlier; Americas revenue declined to $5.8 million from $6.9 million.
Outlook, management commentary, risks and unusual items
- Management expected product demand for the rest of 2021 to exceed the prior-year comparative periods. It cited a $13.9 million purchase order received in June for a proprietary high-enzyme product, with revenue expected in subsequent periods. Purchase orders may be revised or cancelled, and management cautioned that backlog is not a reliable predictor of sales.
- Management expected R&D and SG&A expenses to be higher than the prior-year periods, reflecting increased headcount, continued program development and investment in the business. It stated that existing cash and cash equivalents should fund operations, planned capital expenditures and working capital for at least 12 months, while noting additional capital could be needed if plans or assumptions change.
- Codexis anticipated a Phase 1 trial for CDX-7108 in Q4 2021. Takeda exercised an option for a fourth program in May; Codexis said it was eligible for an option exercise fee. The filing also says the third Novartis technology-transfer milestone was completed in July 2021, triggering an additional $1.6 million payment.
- The Merck sitagliptin catalyst supply agreement expires in February 2022; the parties were negotiating an extension. Q2 and six-month 2021 revenue under the agreement was $2.2 million and $5.5 million, respectively.
- Codexis entered a 10-year San Carlos facility lease, expected to commence in November 2021. Disclosed minimum undiscounted payments were $31.7 million, in addition to $29.2 million of minimum payments under existing operating leases.
- COVID-19 had, in management’s view, a minimal revenue impact in the first half of 2021, but could still disrupt customers, suppliers, manufacturing, logistics and R&D. The company depends on third-party manufacturers for commercial-scale enzyme production.
- No material pending litigation was reported, and the company said there were no material changes to the risk factors disclosed in its 2020 Form 10-K. Management assessed disclosure controls as effective at June 30, 2021.
Important facts for investors to verify
- Whether the $13.9 million order ships and is recognized as revenue as expected, and whether customer demand and product margins persist.
- Progress and timing for the Merck agreement extension, Novartis technology-transfer payments, Takeda option-related payments, and CDX-7108’s anticipated Phase 1 start.
- Cash burn, working-capital movements and capital spending against management’s stated liquidity outlook, including the new San Carlos lease commitments.
- Revenue concentration and variability: several customers accounted for at least 10% of revenue or receivables, and a majority of purchase orders may be revised or cancelled.
- Potential supply-chain or COVID-19 effects and the company’s reliance on third-party manufacturing and logistics partners.